South Carolina Personal Lines Practice Exam

Under a broad or special form, how are structures covered?

1. At market value

2. At actual cash value if underinsured

3. At replacement cost if 80% insurance to value is carried

4. At depreciation value

The correct answer is: At replacement cost if 80% insurance to value is carried

In the context of coverage under a broad or special form, structures are covered at replacement cost if the property is insured for at least 80% of its value. This means that in the event of a loss, the insurer will reimburse the policyholder for the cost to replace the damaged structure with a new one of similar kind and quality, without factoring in depreciation. The requirement of having 80% insurance to value is crucial because it incentivizes property owners to adequately insure their structures, aligning their coverage with the true value of the property. This approach aims to ensure that policyholders aren't left underinsured and helps maintain the integrity of the insurance pool by encouraging responsible coverage amounts. Coverage at replacement cost is vital for property owners, as it allows them to recover the full value needed to rebuild or repair their home or commercial structure, rather than receiving a potentially lower payout which might not cover actual rebuilding costs.